“Loan Modification or Complication?”

The plan centers on Fannie Mae and Freddie Mac, which between them own or back about 31 million mortgages worth a combined $5 trillion. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages.

Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home’s current value, live in the home on which the mortgage was taken and have not filed for bankruptcy.

Their mortgage payments would be adjusted through lower interest rates or longer repayment schedules with the goal of bringing payments below 38% of monthly household income. Interest rates could be lowered for five years and then raised to a predetermined level. Loan terms could be lengthened to 40 years.

Officials said the standards for loan modifications should fast-track changes in payments. The standards will be applied to loans owned and guaranteed by Fannie and Freddie, but officials said they hope they will also be adopted industry wide.

“We expect that it could significantly increase the number of modifications completed,” said James Lockhart, director of the Federal Housing Finance Agency, the regulator that oversees Fannie and Freddie. …

Fannie reported this week that 1.7% of its mortgages by value are delinquent by 90 or more days. Fannie’s filings suggest that it has about 18 million mortgages on its books, which would work out to about 300,000 mortgages that could potentially be eligible. The borrower will ultimately be responsible for paying the full amount of the principal borrowed, but payment on part of the principal can be deferred to make the monthly payment affordable.

Homeowners who purposefully default on their mortgage to get a modification will not be eligible. Borrowers will have to submit a statement showing financial hardship or a change in financial circumstances, along with proof of their income. The modification will become final once a borrower has made three payments under the modified terms.

But even in cases where declining home prices have taken the value of a home to less than is owed on the mortgage, the balance of the loan will not be lowered under this program.

“This is not loan forgiveness; the loans will be paid but at terms affordable for borrowers,” said Brian Montgomery, commissioner of the Federal Housing Administration.

The fact that mortgage balances will not be reduced for the so-called underwater mortgages — those in which a homeowner owes more than the home is worth — will limit the use and impact of the program, according to some experts.

However, there is a competing interest in getting modifications done and that is the investors who purchased these loans. Some hedge funds, including Greenwich Financial Services and Braddock Financial, told banks in October that they might sue the banks if they changed mortgages that were within mortgage bonds that the hedge funds had purchased. Modifying the terms of mortgages underlying mortgage bonds can change how much those bonds are worth.

Investor rules and underlying servicing contracts with respect to modifications are not uniform and may prevent us from doing modifications that would benefits borrowers and investors.

Under the plan, Fannie Mae, Freddie Mac and other mortgage firms will rewrite the terms on some overdue mortgages so the homeowners won’t pay more than 38% of their monthly income. Modifications could include deferring some of the principal owed, lowering interest rates or extending maturities to as much as 40 years. The process will be streamlined and uniform.

If you know someone in need of saving their home have them contact my office after downloading our questionnaire which should be faxed back to use…get it here .

James Burns, Esq.

Mortgage Meltdown – who’s to blame?

Many people have now looked to point a finger and fixed it on the Community Reinvestment Act, passed in 1977, which requires banks to extend loans where they accept deposits. It was created to combat redlining — the practice of denying loans to residents of minority neighborhoods. Conservatives have periodically criticized the fair-lending law, saying, for example, that it discourages banks from opening branches in poor districts. The latest controversy on these points began via a Sept. 15 editorial in Investors Business Daily, titled “The Real Culprits in This Meltdown.”

Contrariwise, Kenneth Thomas, author of two books about the law (”Community Reinvestment Performance” and “The CRA Handbook”). Thomas says you could just as easily blame the Sept. 11 terrorists (because the Fed slashed short-term interest rates afterward), or the Chinese (for buying so many bonds during the subprime boom). In other words, he thinks it’s a huge stretch to blame the CRA on lenders’ bad decisions.

Mr. Thomas espouses three reasons to exonerate the Community Reinvestment Act in the mortgage meltdown:

Why allegedly the CRA is not to blame

? The CRA applies to banks. Most subprime mortgages came from lenders that were not banks — so the CRA did not cover them.

? The non-bank lenders made more reckless lending decisions than banks did.

? Regulations didn’t drive the subprime lending boom. The pursuit of profits did.

I still think the enacting of the CRA is like loading the gun and even though you didn’t pull the trigger, you set the circumstances for someone to be hurt. I think those involved in this legislation should step up and take responsibility and admit they didn’t go far enough to examine the other side of the coin which was the potential for abuse and that it might get out in the hands of unscrupulous brokers; as if brokers just started in the business in 2000. There is such a symbiotic relationship between the bank and those who peddle the products or the investors (banks) that you are not kidding me when you act as if it is someone else’s fault.

No dah, the pursuit of profit drove the subprime lending boom…why wasn’t someone watching to prevent this and get additional regulation in early enough. When you see something booming you know it is going to get abusive so get proactive rather than were we are now which is reactive with a new deficit around $11.3 Trillion.

Sound off if you have any good ideas or analysis in finding a balance between helping struggling families of color or just struggling families and how to keep it from going haywire with abuse and greed.

James Burns, Esq.

California’s New Foreclosure Law

As a result of the subprime loan market collapse, numerous bills were introduced this year in the California Legislature, including the recently enacted SB 1137.  Within this highly charged political environment, the California Land Title Association (CLTA), along with trustees, escrow companies, and lender groups originally opposed this legislation, which subsequently underwent a series of significant amendments before being signed by the Governor earlier this week.

SB 1137 became effective July 8th as an urgency measure.  However, requirements pertaining to the notice of default and the posting and mailing of an entirely new notice will not become operative until 60 days after the effective date.

The provisions of the new law outlined below apply to loans secured by owner occupied residential real property and made between January 1, 2003 and December 31, 2007.  These provisions will remain effective until January 1, 2013.  The requirements are extensive and the full act text should be consulted for details.

1. A Notice of Default (NOD) may not be filed by the trustee or lender until 30 days after contact is made in person or by telephone with a borrower to asses their financial situation and explore options to avoid foreclosure, or until 30 days after satisfying specified due diligence requirements.
2. During the initial contact the borrower must be advised of the right to request a subsequent meeting.  If a meeting is requested then it must be scheduled within 14 days.
3. An assessment of the borrower’s financial situation and discussion of options may occur at the first contact or at the subsequent meeting, but in either case the borrower must be provided a toll-free number for HUD certified housing counseling agencies.
4. A NOD must include a declaration that the borrower has been contacted or due diligence has been used to try to contact the borrower or that the borrower has surrendered the property.  Due diligence includes having a link to information on the options to avoid foreclosure on the web site of the beneficiary or their agent.
5. If a NOD was filed prior to the effective date of the new law, without a subsequent notice of rescission, then a new declaration must be included as part of the notice of sale.  The declaration must state that the borrower either was contracted to assess their financial situation and explore options to avoid foreclosure or that no contact occurred; in which case the efforts made to contact the borrower must be listed.
6. A NOD may be filed when a borrower has not been contacted as required by the new law if the failure to contact the borrower occurred despite the due diligence of the lender or their agent.  The actions that constitute due diligence are listed in the new law.
7. A new notice has been created by the law and must be posted and mailed at the same time a notice of sale is posted.  The notice advises residents that the property may be sold and that their right to continue to reside in the property may be affected, along with certain other information.

If you have questions please send us an e-mail or if your facing a personal crisis with your mortgage because it has spiked out of control with the interest rate or you owe more than the home is worth and will be worth for years to come we may have legal solutions for you that can put you on the track to recovery. Please download the form on this page and fax it to us available Right here.